Managerial Accounting and the Impacts on the UAE Cost Drivers, CVP and Activity-Based Management - Coursework Example

Managerial Accounting Name: Course: Instructor: Institution: Date of Submission: Critical Analysis Managerial Accounting Introduction Dynamic business environment as driven by technological changes and global competition has caused change in company non-financial and financial information as discussed by Kim et al (2017). This has pushed for a change in management accounting tools from traditional methods such as use of ledger to competitive accounting techniques such activity based costing as shown in a research by Guinea (2016). This has also impacted on managerial decisions by different companies in the United Arab Emirates. The ABC and ABM represents tools for better organizational effectiveness and efficiency as further purported by Burkitt & number (2017). The objective of this critical analysis based on management accounting is to show that new cost systems ABC and ABM when used together can be a strong tools for ensuring effectiveness and competency of all companies in the United Arab Emirates. The analysis will also aim at helping firms to implement new accounting techniques that ensures better tracing of costs to objects, allocation of expenses to costs and the useful measures employed by accountants and managers in making work related decisions This paper will aim at critically analyzing managerial accounting and the impacts on UAE cost drivers, cvp and activity based management. As discussed by Angelopoulos & Pollalis (2017) managerial accounting aims at helping managers entitled to different roles in the organization make decisions. It involves identification, analysis, measurement and communication of information necessary in meeting the organizations’ set goals and objectives. The information used by managers and accountants in managerial accounting is related to costs of purchases on products and services made by the company. The managerial accountants use performance reporting in noting deviation of actual results from the projected budgets by the organization as suggested by Richardson (2017). Managerial accounting also deals with margin analysis (Guinea, 2017). This involves analysis of the increments benefits attained by increase in production and breakeven analysis flows. Breakeven analysis for this case as argued by Richardson (2017) involves estimation of the contribution levels on same products in determining the volume at which businesses gross sales equals the accumulated company expenditures. The determined outcomes of this process will help in gauging the price points for products and services offered by the company (Masoom &Zaman, 2017). The government price regulating agencies as argued by Nunes et al (2016) can use this information in setting the standard prices for commodities and services to avoid inflation. In addition, managerial accounting manages the constraint analysis within the company’s production line or sales process according to Fleischman & Parker (2017). The accountants will work towards determining the possible restraints which emerges and hence derive calculations to explain the effect of such restraints on organizational profits and cash flows. According to research by Zhang et al (2017) constraint analysis helps in gauging firm’s current margins and elimination of further expenditures that add little value to the company. Cost accounting also deals in determining the actual costs of products and services. According to Aly (2017) accountants will compute and make expense charges in analyzing related production overheads associated with manufacture of certain products or service delivery. The allocation of such expenses will be determined by total goods produced and some other factors that are directly related to production which includes machine hours and direct labor hours as argued by Kim et al (2017). Managerial accountants will also employee the use straight costs to properly asses cost of inventory and the goods sold by the company at different production stages. Managerial bookkeeping will involve review of trend lines for certain costs and analysis of usual variance deviations. According to Guinea (2016) this will use the previous pricing, volumes of sales and tendencies of customers. With this data the organization strategic team will be able to forecast for product price changes and effectively plan on how to deal with price variations and avoid infringing the profit margins of the organization as further recommended by Aly (2017). Analysis of capital budgeting is also evident with managerial accounting which involves utilization of information related to organizations capital expenditure decisions as shown by Zhang et al (2017). The typical money budget frameworks such NPV and IRR which assist in reaching management decisions on whether to conduct intensive investments or make huge sales. Managerial bookkeeping will examine suggestions, decide on need for goods and facilities and find the suitable ways of financing firm projects according to Richardson (2017). It also analyzes the pay back phases so that organizations team of experts is able to make future forecasts in economic returns likely to occur with projected periods that the projects occur. Many researchers have however presented arguments on whether an ABC accounting system should critically replace the company’s ledger system, serve as independent system in reaching managerial decisions (Burkitt & Number, 2017). Hence argument by Angelopoulos & Pollalis (2017) suggests that firms should use JIT production system since the conversion will automatically lead to more accurate product costs without ABC. The strongest argument on whether to replace traditional methods with ABC system according Aly (2017) and Guinea (2017) is that all the details associated with ABC system will not be relevant to the stakeholders. This is because the stakeholders of any company are not interested in knowing which products and customer segments are profitable. How Managerial Accounting Analysis Affects Cost Drivers In ABC, the drivers that includes labor costs and maintenance expenses which are of value as discussed by Guinea (2016). The price determinants are important to ABC system, which is a form of accounting in organizations and the technique is critical to management to evaluate cost required in performing activities at various levels in the organization. As argued by Angelopoulos & Pollalis (2017) ABC costing will help in the identification of activities within business estimated budget and estimated resources required to fulfil the activity. Through the driver analysis, it will be easy to identify different factors that drive costs that are attached to activities and hence enable the management to derive other effective costs determinants in relation to machine hours and materials needed in accomplishing projects as further recommended by Nunes et al (2016). In other circumstances, Guinea (2017) argues that there are multiple cost drivers responsible for a single expense occurrence. Analysis of the cost drivers will assist with allocation expenses in more systematic manner that enables precise controls of the factual costs associated with production products and rendering of services (Aly, 2017). The analysis is relevant to companies in determining the total cost drivers in its line of production. The Cvp Analysis Impacts Through the critical analysis of managerial accounting, cvp analysis will help companies in the United Arab Emirates determine their contribution margins as argued by Kim et al (2016). The contribution margin refers to the amounts that remains from the sales revenues after deducting the variable expenses. Companies operating in UAE will be able to make informed decisions about the service or products they avail to the market according to Zhang et al (2017). Critical analysis will enable understanding of the relationship between variable costs, fixed costs, selling prices and firm’s output level. Cvp can be applicable in setting product and services prices, market analysis to gauge whether to introduce new products or services, replacement of equipment by companies and determination of breakeven points (Kim et al, 2017). The critical analysis will establish the relationship between the three main variables i.e. cost, sales and profits. The cvp analysis will be crucial to managers in planning for revenues and determination of the required revenue in achievement of desired profit levels. The management will be able to analyze the sales volume required to achieve the desired profits. Kim et al (20170 further proposes that conventional approach to CVP analysis should involve the use of volume based measure, majorly based on the unit of products produced and sold. The activity based costing critically analyzed will aid in the identification of price determinants to be employed by companies procedural level formalities which encompasses material set-up and material handling. When using the volume based approach the two will be combined into fixed costs since they are fixed with the output volume as argued by Fleischman &Parker (2017). Cvp will becomes an important tool for managers especially when they use it determining sensitivity of profits in relation to changes in costs or sales volume. If the cost, prices and volumes can significantly change, then it will be easy to change the firm’s general strategy. For instance, there is a risk that the firm’s sales level will not reach the target level then the management can be prudent in reduction of the planned investment in fixed costs (Guinea, 2017). The critique of management accounting techniques will lead to development of improved production techniques through automation, work flow enhancement and other techniques. As the management accounting techniques changes, the nature of cvp will also change. For instance in an environment with full automation in production, labor cost will be less important and variable costs will primarily be cost of material costs (Nunes et al ,2016). In this environment, the management can easily make changes to recruitment policies to reduce the number of workforce through retrenchment and enlarge the budget for materials. Effects of Managerial Accounting Critical Analysis on ABM Through the critical analysis of management accounting the management will be able to classify its operational activities as value added and non-value added according to Richardson (2017). The activities that increase the worth of a service or a product will be classified as value added whereas those that do not add value for instance storage of products before sell will be classified as non-value added. The analysis will be aided towards continuous improvement in products and services to ensure customer acceptability and loyalty to the organization as postulated by Angelopoulos & Pollalis (2017). The management uses management accounting to reduce on non-value added activities hence reduction in costs of production and high profit realization. The ABM activities will be directed towards reduction of costs and improvement in customer value. Through managerial accounting analysis ABM will be divided in relevant sections i.e. operational ABM which requires that management do things right using the activity based costing to ensure efficiency and planned ABM techniques which shows whether management is doing the right things using such techniques to estimate on product advancement and development to be used (Masoom & Zaman, 2017). The information can be used to gauge customer profitability analysis through identification of profitable customer and focusing on them. Companies in UAE will be able to identify relevant customer segments and diversify towards such market segment to realize the needed profits. This trend as argued by Burkitt & Number (2017) can also be used to determine prices of commodities in varied customer segments. The price decisions can be tied to critical analysis of managerial accounting concepts and techniques. In the operational ABM, as discussed by Zhang et al (2017) a company will make decisions on reducing the activities that do not add value in order to cut production costs without reducing the value of the products or the services. The critical analysis provides risk information concerning activities with implicit value, which not necessarily appeared in the financial value added to any company product. According to research by Nunes et al (2016), ABM will equip the middle managers with skills to understand costs to help in making decisions that benefits the entire company not just the related activities. Conclusions Managerial accounting is crucial in calculating the cost and expenditures in any organization. The critical analysis is relevant mainly to managers in making strategic decision that affects the firm’s profit margins. Many firms have moved from traditional ledger system to new techniques such as ABC and ABM systems which helps the company classify operations according to the value they add to the organization. The value adding services are then prioritized to enable fully realization of organizational goals and profits. References Aly, I. (2016). COMPARISON OF STUDENTS’PERFORMANCE IN A MANAGERIAL ACCOUNTING COURSE TAUGHT IN BLENDED LEARNING, TRADITIONAL CLASSROOM, AND ONLINE SETTING. QRBD, 325. Angelopoulos, M., & Pollalis, Y. (2017). Activity Based Costing (ABC) as a tool for Lean Transformation: The Case of the Greek Power Public Corporation (PPC). Burkitt, D., & Number, P. (2017). MBA PROGRAM SYLLABUS. Cell, 323, 481-2530. Fleischman, R. K., & Parker, L. D. (2017). What is Past is Prologue: Cost Accounting in the British Industrial Revolution, 1760-1850 (Vol. 6). Routledge. Guinea, F. A. (2016). The Need for Managerial Accounting Systems. SEA-Practical Application of Science, (12), 465-470. 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Investigating the Empirical Effect of ABC Stages on the Performance of Companies. Iranian Journal of Management Studies, 10(1), 175-205. Read More